Punch, the 4,300-strong pub company, abandoned its high-profile float, only to list on the stock exchange seven days later. By Mark Stretton.
They say a week is a long time in politics but for Punch executives it must have seemed like an eternity. Eleven days ago a small band of Punch executives made their way to the City having finished a gruelling three-week round of presentations to potential investors. The roadshow spanned most of mainland Europe, and America.
Accompanied by advisers from Deutsche Bank, the executives gathered in a meeting room at chief adviser Merrill Lynch's London offices. Joined by Punch founder Hugh Osmond (pictured) via speakerphone, the executives decided to pull the plug on the flotation of Britain's second biggest pub business.
Music retailer HMV Group's dismal stock market debut plus institutions refusal to go above 230p meant the company would not press ahead.
At the time of the decision one executive said: "It was a ballsy thing to do. Unlike HMV, we were not a forced seller. We could have got it away, but we didn't see why we should cede to the pricing demands of investors - why sell the company on the cheap?"
More curious than anything else that happened in the week that Punch pulled its float was the negative, if not damning, article that appeared in the Financial Times questioning Punch's business model. To some extent it saw sentiment swing away from the business.
The article, labelled "sabotage" and "propaganda" by rival pub company heads, asked "are tenants and investors being asked to pay too much?" It published 24 hours before Punch was due to price its shares. It renewed the argument that pubcos profit at lessees' expense.
The Financial Times is the bible of the business world and normally takes the view of what is good or bad for the investor. Therefore, it was surprising this article did not chronicle the gains returned to investors by tenanted pub companies in recent times, not least by Enterprise and Punch.
Tim Rees, director of investment strategy at Clerical Medical Investment Group, told the Financial Times his institution would not be taking up the Punch issue. He said: "It is a classic case of an out for a private equity group. It is hardly a growth stock." He may have had a point and it is positive to see some of Punch's biggest investors are now staying put.
But it would be interesting to know if Mr Rees adopted the same policy when Enterprise Inns, backed by private equity, came to market in 1995. If so, he missed a massive opportunity to make serious gains for his company and its customers.
But then Enterprise is a different beast and was much smaller when it came to market. Ted Tuppen's company may well have played a part in Punch's failure to generate interest in the 250-300p range. Enterprise appears to have the most visible pub deals already sewn up (Nomura and Laurel).
But Punch did, eventually, float to become more acquisitive and it will look to do deals. However, the company has only raised £56m to fund growth. If, and when, it finds a sizeable target, it will need to go back to the market for more cash.
Punch was also criticised for refusing to publish details about the group. Merrill Lynch's insistance that Punch did not embark on a PR campaign looked like a mistake given the negative publicity.
Indeed, most analysts have yet to take a view on Punch because they do not have access to the relevant information. Many say it will have to go some to rival Enterprise.
When Punch initially pulled its float the bottom appeared to fall out of the new issues market. The number of companies expected to float in 2002 fell from 20 to 10 overnight.
The resurrected Punch float is seen as a lifeline to the struggling new issues market. Now it appears there is an appetite for the right company at, more importantly, the right price, to come to market.
However, some have suggested the move will be a cause of embarrassment to lead adviser Merrill which appeared to initially price Punch out of the market. "It's slightly odd that Merrill didn't work out the price had to be 230p," commented one analyst, "when the institutions had been telling them that all along."
Other observers said that the decision to pull the float was a slightly emotional reaction and perhaps in the cold light of day, 230p did not seem such a bad price.
As this article was posted City sources suggested the greater demand for shares at the lowered price would ensure a calm aftermarket.
A raft of companies will be watching Punch Taverns, hoping the new issues market proves to be a more hospitable place.